Options Trading Secrets

admin — Fri, 29 Jul 2011 15:13:58 +0000

Options are a decaying asset, and as you get closer to expiration, the rate of decay accelerates. The value of a straddle’s long calls and puts constantly declines because of time decay. As a result, to make a fair profit you need a price move and / or an IV increase that may overcome the time decay and the primary purchase cost.

Theta is used to measure a position’s sensitivity to the passing of time. It is usually expressed as the worth a position would lose in twenty four hours thanks to the effect of time alone. Theta is always negative for a long straddle as the options decline in value as time goes by.

Time rot does not manifest itself immediately. A six-month straddle doesn’t decay much initially, and time rot does not truly start to accelerate till the last month or so before expiration.Day trading for dummies happens to be another option to think about.

Because volatility trades take a little time to develop, ensure you give yourself sufficient time for IV to make the move you are expecting. Look to use farther-out options, even leaps ( long term Equity anticipation stocks, which are options that may expire a few years in the future ), when buying straddles to provide masses of time for IV to fall back to its average level.

choosing the best position. Many traders have difficulty understanding exactly how option spreads start to be profitable. For a long straddle to be rewarding at expiration, the stock price must be satisfactorily lower or higher than the options’ strike price to give either the call or put enough inbuilt price to cancel out the straddle’s original cost. But before expiration, you need to take into account the concurrent effect changes in the basic stock price, implied volatility, and time have on each leg of the spread. For that reason, having access to a programme that allows you to analyze and graphically show the profit or loss of a potential option trade is essential.

Let’s compare how lucrative 2 long straddles in the Biotech HOLDRS could be, one using the Aug 2004 options ( with 54 days to expiration ), and the other using the January 2007 jumps ( more than two years to expiration ). In early July, BBH was futures trading at 142.5, precisely halfway between the available strike prices of 140 and 145. Comparing the probable trades exposed using the 145 strike price had a higher expected return.

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The Secret To Technical Analysis

admin — Sun, 25 Apr 2010 09:32:48 +0000

Technical analysis of the stock market, or any other market such as Forex, futures, is how most traders and investors make their trading decisions. This is as opposed to fundamental analysis which most people more agree is pretty much done as a way of making trading decisions, unless of course you are Warren Buffet!.

You only have to think back to major stock market scams like Enron to know that it is almost impossible for the average, and even very sophisticated fund manager or hedge fund trader to really know what the real financial state of a company is.

Just by reading the balance sheet and other quaterly reports they release gives you a very poor insight into the real health of the company. Whereas the technical charts of the company tend to give the real picture of what the market thinks of the value of the company. In the case of Enron even simple technical analysis told you to SELL when the stock was in the $80-90 range, this is why technical analysis of stocks is so popular.

So what are the secrets to technical analysis?, I’m about to tell you, here are my golden rules:

* Only use 3-5 simple technical analysis indicators

* Make sure that you understand how the indicators that you have selected work, what the parameter settings are and in what market conditions they are effective

* After selecting your indicators and parameter settings don’t mess with them.

The real secret to technical analysis is to get VERY familiar with your choosen indicators, and really this can only be done by watching and studying the market, so that you get to the point that you TRUST them.

The fact is that in any market, for each bar, there are only 5 pieces of information, the open, close, high, low and volume, yet there are now hundreds of indicators. Most of these indicators are displaying much the same information and so are redundant.

For the record my set of indicators are:

* 4 Simple Moving Averages

* Bollinger Bands

* MACD

* Stochastics

But the way I use them is quite special, to learn more about how to become an expert at technical analysis visit:

Top Dog Trading Review

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Options Trading Secrets

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